KUALA LUMPUR: The crude palm oil (CPO) industry enjoyed a good year in terms of prices and is poised to remain buoyant at least until the first-half of next year.
Futures prices are anticipated to hover above RM3,600 per tonne and test the RM4,000 per tonne level in the next few months on tight global vegetable oil supplies from Southeast Asia to South America.
Much of the gains will be driven by underperforming palm oil output in top suppliers Malaysia and Indonesia.
“Palm oil’s low yielding cycle and the delayed adverse weather effect on production is likely to see output at its lowest from December to March next year.
“Against this backdrop, the current bullish rally will continue,” said the chief market strategist of Nextview Sdn Bhd, Benny Lim in an interview with Bernama.
Explaining further, he said the downside risk was minimal in the next two to three months, however, demand would remain high due to the Chinese New Year festive season, which would result in food producers stockpiling on the commodity ahead of the celebration.
Industry analysts forecast that the after effects of the
El-Nino weather early this year and in 2009 would boost prices by 3.5 per cent compared with current price levels, echoing Dorab Mistry, Head of Vegetable Oil Trading, Godrej Industries, who told a conference in Bali recenty that the period of greatest tightness would be between February and May 2011.
“We need prices to rise now in order to rein in demand and to stimulate plantings,” he had said.
A recovery is expected to begin from April 2011 but not as strong or as impressive as in previous years.
Lim said if production of palm oil was not sufficient, prices may climb higher and cause inflation to rise globally.
“Prices may take a steep dive once palm oil is not affordable because of high prices,” he added.
The CPO price climbed to a 29-month high of RM3,650 per tonne on Dec 9 on continued supply concerns.
Meanwhile, OSK Research said the upside was expected to be limited between RM3,300 and RM3,500 per tonne while ECM Libra Investment Research said if the CPO price reached RM4,000 per tonne, a pullback in demand could happen.
Early this month, Mistry said the El-Nino, which brings hotter weather and saps palm yields, was often closely followed by La Nina-induced rains which has emerged in Southeast Asia recently and boost yields later on by encouraging pollination.
He said palm oil output in Indonesia and Malaysia may grow by 2.5 million tonnes against the usual quantum of three million tonnes as planters apply too much fertiliser that can stimulate yields.
The on-going green campaign against plantation expansion and a ban on forest clearing by Indonesia starting next year was also expected to limit acreage growth.
In Malaysia, palm oil production between January and November stood at 15.76 million tonnes, far below the projected output of 18.1 million tonnes forecast for this year, and lower than the 16.04 million output registered in the corresponding period in 2009.
Exports from January to November this year totalled 17.31 million tonnes against 16.32 million tonnes registered in the same period last year.
On the metal front, tin enjoyed a good year due to limited supply an falling stocks.
Metal analysts project that the average price of tin would be around US$18,767 per tonne next year while on the Kuala Lumpur Tin Market, the metal was trading above US$25,000 per tonne.
Elsewhere in the industry, Malaysia Smelting Corporation Sdn Bhd (MSC), the world’s third largest integrated tin mining and smelting group, which moved back into its core tin mining and smelting operations since 2009, has abandoned other minerals and metals.
Group chief executive officer Datuk Seri Dr Ajib Anuar was quoted as saying recently that the combination of reviving demand and supply constraints in China and Indonesia would help underpin tin prices despite the high level of London Metal Exchange (LME) tin stocks, which was a negative factor.
Malaysia has maintained an average tin stockpile of of 1.3 million tonnes beginning 2000 to June 2010 and is expected to continue the trend next year.
On the natural rubber front, favourable factors are expected to keep the market in its buoyant mood in the near-term.
Production is expected to be restricted as widespread rainfall will not only continue in November but also curb raw material supply, thereby extending the tight supply situation.
The Kuala Lumpur market experienced strong demand from consumers amid fears of worsening supply caused by persistent rain in major producing countries.
Dealers reported that the underlying tone of the market remained very strong, with active consumer buying amid fears of supply shortages, contributing to the steep run-up in prices.
The price of SMR20 hit the historic RM1,426.50 sen per kg level on Dec 15, its highest in 38 years, brought on by supply disruption due to the ongoing wet weather coupled with increased demand from tyre manufacturers.
The cocoa industry, on the other hand, is also enjoying a boom with cocoa beans fetching between RM8,500 and RM9,000 per tonne.
“The current cocoa price is the highest recorded in 32 years,” said an industry analyst, adding that Malaysian cocoa beans were still being traded at a discount to the London terminal market.
The reason is the Malaysian beans have higher acidity and low cocoa flavour compared with the Ghanaian beans.
However, the Malaysian cocoa beans are still highly sought by the grinders and traders because of its intrinsic qualities that include better butter hardness and good fermentation profile among others.
The downstream cocoa industry in Malaysia has also shown rapid growth.
Local grinding has increased from 139,000 metric tonne in 2000 to about 350,000 metric tonne as of June this year.
Export earnings from cocoa and cocoa-based products amounted to RM3.2 billion in 2009 and is expected to surpass this figure in 2010 despite the economic downturn.
This indicates that Malaysian cocoa and cocoa-based products are well received, both locally and internationally, due to its quality.— Bernama